Missouri Housing Development Commission awards low-income housing credits

The Missouri Housing Development Commission on Friday approved tax credits to build low-income housing that will cost the state treasury $135 million over 10 years. If history is any guide, less than $54 million of that amount will actually be spent on construction, with the remainder going into the pockets of investors and Uncle Sam.

Locally, developer Chad Hartle of Jackson won credits to rehabilitate the Mount Vista Apartments at Park Drive and Lorimier Street. He will rename the complex Cape Riverview Apartments and provide five one-bedroom and 38 two-bedroom units for low-income families. Hartle was awarded state tax credits worth $4.1 million over 10 years, an equal amount of federal tax credits and a $450,000, 30-year loan at 1 percent to finance the purchase and renovations.

To raise money for the construction, Hartle must sell those tax credits at a steep discount to investors. Hartle did not return repeated messages left at his office last week.

Estimates vary, but state credits traditionally have been worth 35 to 40 percent of their face value. In the past, the federal credits have sold for up to 95 percent of their value, but the collapse of financial markets in 2008 has changed that. State treasurer Clint Zweifel, chairman of the commission, said the federal credits are now bringing about 60 percent of their value.

It's that difference between the stated value of the credits and the money actually used to build housing that prompted state Sen. Jason Crowell to propose a one-year moratorium on the housing tax credit program. "That in itself is the mythical waste, fraud and abuse that you hear politicians talk about," Crowell said. "This is one area where I am clearly demonstrating waste, fraud and abuse."

It is wasteful because the state makes a big investment and gets a low return, Crowell said. It is a fraud because more money goes to investors than housing and it is abused by developers who expect favorable treatment because of their political connections, he said.

"If we were treating taxpayer dollars like our own dollars, we would never spend it this way," Crowell said.

Crowell isn't alone in his criticism. In 2008, State Auditor Susan Montee issued a scathing report that called the program inefficient and far costlier than estimated when enacted.

And in an audit issued in June, Montee found low morale among current and former employees and said "a perception exists that political influence and campaign contributions to elected officials on the commission influenced the project selection process."

Direct grants or low-interest loans to developers is a more efficient way to provide financing, said Linda Couch, National Low Income Housing Coalition vice president for policy. "Having a grant program you take away a lot of the middle people who each take their cut along the way," she said.

Tax credit programs don't help the poorest, those earning less than $16,770, or 30 percent of the median household income, Couch said. In Missouri's Eighth Congressional District, which includes Southeast Missouri, the coalition estimates a need for 5,661 additional affordable housing units for people in that poorest category.

Zweifel defended the program, calling it good for jobs and an important way to attract investment in affordable housing, especially to rural areas. "One thing I don't support is the state acting like a bank and taking that credit risk," Zweifel said. "Ultimately, taxpayers would be left holding the bag."

The commission has reformed its practices in response to criticism, Zweifel said. It has lowered the allowance for developer fees, enacted new ethics rules and begun an analysis of the credit program, he said.

"We are trying to get more out of this investment for the citizens of Missouri," Zweifel said. "A time when we are facing some our toughest economic challenges, is no time to stop one of the best jobs programs we have."

The state tax credits are worth less than face value for several reasons. The credits are redeemable over a 10-year period and investors may not redeem the credits until tenants are actually living in the project, said Janell Thome, rental production program specialist at the commission.

Investors won't pay full value for a credit that they must wait 12 to 13 years to redeem, she said.

Another factor that reduces their value is the way the credits are treated by federal tax law. Tax credits are a direct reduction in taxes owed, compared to a tax deduction that reduces income before it is taxed.

A dollar paid in state taxes is deductible on federal tax returns, but a $1 tax credit is not. In the top tax bracket, that means that it costs 35 cents in federal taxes to redeem that $1 state credit.

Hartle's recent conversion of Schultz School, 101 S. Pacific St., into Schultz Senior Apartments illustrates the inefficiency of tax credits, Crowell said. Hartle was awarded federal and state affordable housing credits, federal and state historic preservation credits and a small amount of Affordable Housing Assistance Program funds, $16.9 million in total. That works out to $374,843 for each of the 45 apartments, according to figures provided by Crowell. Of the $16.9 million, just less than $11 million was spent on the development and investors will reap $5.9 million in profits from the tax credits, he said.

"It is insane," Crowell said. "It is like giving a 5-year-old your credit card and saying who cares what they spend."

State law allows the commission to issue as much in state credits as the commission's allocation of federal credits. This year, however, the commission voluntarily held back, Thome said. The state had regular federal tax credits worth $135 million over 10 years to distribute, plus an allocation of credits worth $116 million over 10 years related to a disaster declaration in 30 counties. The commission chose only to issue $135 million in credits, Thome said.

"We basically created a self-imposed cap," she said.

Missouri's state finances are in rough shape because of the recession. Lawmakers are faced with making major cuts in areas from health care to state universities and a spending plan from Gov. Jay Nixon that doesn't fully fund public schools. The tax credit program has become too expensive to continue, Crowell said

Missouri expects to collect less than $8 billion in general revenue this year. The 2008 audit report projected that by 2020, the total credits issued by the commission will amount to $4.1 billion with $2.3 billion outstanding and redemptions totaling $100 million or more annually.

In her 2009 audit report, Montee uncovered about $20,000 spent on legal bills for executive director Pete Ramsel and director of operations Mary Helen Murphy in a federal investigation. Ramsel resigned in December, effective March 1. At Friday's meeting, the commission accepted a written explanation of the legal bills, that Ramsel and Murphy were not targets of an investigation and were acting on behalf of the agency and in its best interests, the Columbia Daily Tribune reported.

rkeller@semissourian.com

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380 N. Lorimier St., Cape Girardeau, Mo.

101 S. Pacific St., Cape Girardeau, Mo.